For the past year, the phrase “cap and trade” was as taboo as using Lord Voldemort’s name in J. K. Rowling’s Harry Potter series. Wizards scared of the Dark Lord referred to Voldemort as “He-Who-Must-Not-Be-Named.” For those hoping to pass cap and trade, it became “The-Energy-Policy-That-Will-Create-Jobs.”
But opponents correctly labeled cap and trade a significant tax, and the bill died in the Senate. In fact, congressional votes on cap and trade are a major talking point on campaign ads—ads that vilify Members who voted for the Waxman–Markey cap-and trade-bill last year. Cap and trade has dim hopes of revival, and as a result, politicians are turning to a plan that could actually pass: a renewable electricity standard (RES).
An RES mandates that a certain percentage of our nation’s electricity production come from wind, solar, biomass, and other government-picked renewable energies. What makes it scarier than cap and trade is that it has cap-and-trade-sized costs and bipartisan support. In a September 12 Politico op-ed, Governors Chet Culver of Iowa and Don Carcieri of Rhode Island, leaders of the bipartisan Governors’ Wind Energy Coalition, stressed the need for a federally mandated RES:
Governors from California and Oregon to Minnesota and Maine agree that among the best ways to address these issues is to harness the economic and environmental benefits of domestic renewable electricity production. The way to do that is by passing a strong Renewable Electricity Standard—to ensure rapid growth of the nation’s wind and other renewable electricity sources. We are today sending a letter to Senate leadership, urging the prompt adoption of a strong national RES.
A strong RES must be the cornerstone of our nation’s new clean energy economy. It won’t mean just wind farms in Iowa or off the coast of Rhode Island—though it would expand job opportunities in both our states. The RES remains the most economically efficient way to create opportunity all over the country and throughout the supply-chain in energy manufacturing; new project construction and associated transmission, and continuing operation and maintenance of these facilities.
The truth of the matter is that if wind energy could compete in the market and provide consumers with cheap electricity, it wouldn’t need a mandate that forces production. Though the source of wind and solar energy is free, power delivered from these sources is very expensive. The flow of wind is erratic and uncertain, which means that the power generated from wind is as well. Further, location choices for fossil and nuclear-fueled power plants have much greater latitude than those for wind turbines, which, like hydropower plants, must be located where the natural resource is best suited—not necessarily close to where the power is used.
Higher electricity prices have rippling effects throughout the economy. More expensive electric bills force businesses to make production cuts and reduce labor. According to a new Heritage Foundation study, if Congress implemented a 22.5 percent RES by 2025, household electricity prices would jump 36 percent and industry prices by 60 percent by 2035. There would be 1 million fewer people working on average with the RES in effect than if there were no RES. And as the mandated level of renewable use rises over time, so do the losses imposed on the economy. Summing up the impacts for 2012–2035 yields a total loss of $5.2 trillion in GDP.
Calling an RES the boost the American economy needs is a farce. George Mason economist Russ Roberts wrote a criticism of stimulus spending in general that applies here:
When the economy is broken, why would you think an increase in spending would get it going? Why would it have any impact other than an immediate short-term impact limited to the people who receive the money? Why would it get the whole economy going again? Think of having a lot of wet wood and trying to get it going by lighting newspaper as kindling. There’s a fire for a while, while the newspaper is burning. But once the newspaper is consumed, the wood hasn’t caught. Even burning a lot more newspaper (bigger stimulus package) isn’t going to get the wood dry enough to catch fire.
Subsidies, mandates, and special preferences for uncompetitive sources of energy are worse than burning newspaper. Because these policies kill more jobs than they create, the fire will never be as big as it could be.
Nicolas Loris is a Research Assistant at The Heritage Foundation’s Roe Institute for Economic Policy Studies. Loris studies energy, environment and regulation issues such as the economic impacts of climate change legislation, a free market approach to nuclear energy and the effects of environmental policy on energy prices and the economy.
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